CONNECTING COMMUNITIES Annual Report and Accounts 2013 BALFouR BEAttY AnnuAL REPORT AND Accounts 2013 inteRActiVE PDF The functionality of this PDF is outlined below. Please note that tablet and mobile users will experience a reduced functionality. Key: Front cover Previous page Next page Previous view Main contents page Go online balfourbeatty.com/ar2013 Balfour Beatty Annual Report and Accounts 2013 balfourbeatty.com/ar2013 Balfour Beatty is an international infrastructure group that delivers world class services essential to the development, creation and care of infrastructure assets; from finance and development, through design and project management to construction and maintenance; either alone or in partnership and by integrating local supply chains. CONTENTS FINANCIAL PERFORMANCE Strategic Report Group revenue Pre-tax profit1 IFC Financial Performance IFC Financial Summary 01 Chairman’s Review 02 Our Group at a Glance +1% –32% 04 Chief Executive’s Report 2013 £8,745m 2013 £187m 06 Business Model 2012 £8,656m 2012 £277m 08 Market Overview 10 Our Strategic Objectives & KPIs 2011 £8,654m 2011 £292m 12 Strategic Objectives 20 Principal Risks Underlying earnings per share1 Dividends per share 24 Chief Financial Officer’s Review 28 Performance Review 36 Directors’ Valuation of PPP Concessions –37% 14.1p 38 The Way We Work 2013 20.0p 2013 14.1p Governance 2012 31.7p 2012 14.1p 44 Chairman’s Introduction 2011 31.2p 2011 13.8p 46 Board of Directors 48 Directors’ Report 68 Remuneration Report FINANcial SUmmarY (£m unless otherwise specified) 2013 2012 Change (%) Financial Statements Revenue including joint ventures and associates 10,118 9,966 2 86 Independent Auditor’s Report Group revenue 8,745 8,656 1 88 Financial Statements Profit from continuing operations 98 Notes to the Financial Statements – underlying1 203 284 (29) Other Information – reported 48 154 (69) 158 Unaudited Group Five-Year Pre-tax profit from continuing operations Summary – underlying1 187 277 (32) 159 Shareholder Information – reported 32 147 (78) Earnings per share from continuing operations – underlying1 20.0p 31.7p (37) – basic 2.5p 17.9p (86) Dividends per share 14.1p 14.1p – Financing – net cash borrowings before PPP subsidiaries (non-recourse) (66) 35 – net borrowings of PPP subsidiaries (non-recourse) (354) (368) KEY TO FURTHER CONTENT: 1 From continuing operations, before non-underlying items. 2012 restated in accordance with Note 38 on page 145. Read more on p00 Read more online balfourbeatty.com/ar2013 Group KPIs p10 1 top-flight experience in change management and a strong business CH AIRMAN’S to business client focus honed in an international environment. Two non-executive Directors retired R EVIEW from the Board during the year: Hubertus Krossa, following the decision to divest the 2013 was a challenging year for Balfour Beatty, Group’s Mainland European rail operations; and Mike Donovan having served eight with a disappointing 37% decline in earnings years on the Board, including as chair of per share as the result the Business Practices Committee. We thank both for their valued contributions. • Operational issues within the UK Construction At the end of the year, we also said goodbye to Robert van Cleave, CEO business have been actively addressed. of Construction Services US and to Mike Peasland, previous CEO of our UK construction business. I would like to • Profitable order book growth in the recovering wish both all the best for their retirements US and UK infrastructure markets is the overriding and thank them for all their efforts within priority for 2014. the business. Employees and safety Our employees have worked tirelessly throughout the year to meet our clients’ expectations. The Board thanks them for their personal commitment. Despite Secondly, the profitable Australian overall measures of accident and injury professional services business had levels continuing to improve, five to cope with the need to significantly employees of subcontractors lost downsize its operations, given the rapid their lives during the year whilst on duty. collapse in local resources and mining This is a matter of huge regret to everyone related investment. Operating costs, involved; every incident has been including headcount, have been exhaustively investigated to determine aggressively reduced. Every effort has whether changes to our processes been made to retain essential capabilities or procedures can reduce future risk. to benefit when sector reinvestment The way we work p38 progressively occurs, albeit this will inevitably take some time. Ongoing priorities Despite short term earnings declines, The majority of the Parsons Brinckerhoff the Board is proposing to hold the final Revenue from continuing operations worldwide business, the US construction dividend of 8.5 pence per share (2012: including joint ventures and associates business and Support Services all 8.5 pence), resulting in an unchanged increased by 2% in the year to performed broadly in line with expectations. £10,118 million. Underlying pre-tax profits full-year dividend of 14.1 pence. The Infrastructure Investments division of £187 million were down 32%, most of It is right that recent challenges allied had an excellent year, successfully which occurred in the first half of the year. to recovery potential in our two largest recycling capital in line with its long term The full-year underlying EPS declined markets will impact on our operational strategy, and generating £82 million by 37%. The year-end order book was focus in 2014. The main priority is to profits on the sale of mature PFI assets broadly flat at £13.4 billion. recommence profitable order book growth in the process; this outcome was ahead in recovering US and UK infrastructure Most parts of the Group delivered of expectation and £45 million above markets, where the Group’s largest acceptable operating results in still highly Directors’ valuation. competitive infrastructure markets; businesses are based. Expansion into however the year presented two particular Chief Executive’s Report p4 new and emerging markets will be limited for the immediate future. Although the challenges. In April, it was announced Year-end net debt was £66 million, albeit Group’s balance sheet remains strong, that the UK construction business would the operating cash outflow of £162 million with sources of funding now well deliver substantially lower profits. This during the year was disappointing, diversified, improving underlying arose from a combination of order book not helped by first half issues within cash generation is also a key priority. and margin contraction in both the Major Construction Services UK. Projects and the Regional business; but Discretionary investment beyond was not helped by a major consolidation Board the ongoing recycling of PPP capital and reorganisation project being There were a number of Board changes proceeds will be deliberately prioritised implemented at the beginning of during the year, it was announced in to ensure that this is achieved. the year, with an erosion of operating January 2013 that Ian Tyler would step management’s focus as a result. Since down as Chief Executive at the end of that time, major changes have been March 2013, and that Andrew McNaughton made to improve operational delivery would be appointed to succeed him. and also ongoing profitable work winning Belinda Richards and Bill Thomas joined capability, including a number of new the Board as non-executive Directors divisional management appointments. with effect from 1 September 2013. Steve Marshall Second half profitability has improved In combination, they bring to the Board Chairman materially as a result. Balfour Beatty Annual Report and Accounts 2013 balfourbeatty.com/ar2013 2 PROFessionAL OUR GROUP SERVices Our Professional Services business is a global player in design, planning and AT A GLANCE programme management and a market leader in transportation and power. Our four businesses draw on more than 100 What we do years of experience to deliver the highest levels • Programme and project management of quality, safety and technical expertise to our • Construction management clients, principally in the UK and the US, with • Project design developing businesses in Australia, Canada, • Technical services the Middle East and South East Asia. • Planning • Consultancy With proven expertise in delivering infrastructure critical to Key highlights support communities and society today and in the future, • Order book increases in the US and our key market sectors focus on: Middle East offset by the impact of Australia and minor movement in Infrastructure Complex buildings the UK business • Transportation • Commercial • Profitability impacted by significantly lower volumes in Australia (roads, rail and aviation) • Social • Ongoing strength in core US • Power and energy transportation and market development • Water in key markets including Middle East and Canada expected in 2014. Business Model p6 Professional Services p28 £10 billion Revenue2 generated 2 Revenue this year 16% by region total revenue2 UK £4,607m North America £3,921m Rest of World £1,590m £1,533m Order book £1,661m 2 40,000 Revenue Employees worldwide £54m Profit from operations1 1 From continuing operations before non-underlying items. 2 From continuing operations including joint ventures and associates. Balfour Beatty Annual Report and Accounts 2013 balfourbeatty.com/ar2013 3 ConstRuction SUPPORT INFRAstRuctuRE SERVices SERVices INVestments We manage strong construction Our